WASHINGTON – On Wednesday, U.S. President Donald Trump proposed the biggest tax overhaul in three decades. This is a plan that would slash rates on businesses and the wealthy – but it faces an uphill battle in Congress with his own party divided and Democrats hostile.
The plan offered insufficient details about how to pay for the cuts without dramatically driving up federal deficits. Trump developed it during months of high-level talks among Trump’s benefits and top Republicans in Congress.
The proposal would lower corporate income tax rates, cut taxes for “pass – through” businesses, reduce the top income tax rate for individual Americans and scrap some widely used tax breaks including one that benefits people in high – tax states dominated by Democrats.
Big business embraced the plan, while Democrats voiced opposition. Republicans have produced no major legislative successes since Trump took office in January even though they control the White House and both chambers of Congress.
What is the New Trump Tax Plan?
The proposal would lower corporate income tax rates, cut taxes for “pass-through” businesses, reduce the top income tax rate for individual Americans and scrap some widely used tax breaks including one that benefits people in high-tax states dominated by Democrats. Big business embraced the plan, while Democrats voiced opposition.
The tax plan was outlined the day after the Republicans’ overhaul of the U.S. healthcare system collapsed in the Senate, while another key item on Trump’s wish list, infrastructure spending, has yet to materialize.
Trump has said the tax overhaul would provide tax relief to middle – class residents and the White House said that under the proposal typical middle – class families would have less of their income subject to federal income tax.
The plan foresees a 20-percent corporate income tax rate, down from 35 percent now. Trump had initially proposed a 15-percent rate. Companies in the United States pay high taxes by global standards and they have been seeking a tax cut for years, even though many of them pay much less than the headline rate due to loopholes and tax breaks.
Republicans hold a thin 52-48 majority in the Senate and may need some Democrats on board to win the passage. But Democrats said the plan would enlarge the federal deficit to deliver tax cuts to wealthy residents rather than the middle – class families that Trump and Republicans say they are trying to help.
What do Analysts Say?
Analysts have warned that huge tax cuts would balloon the federal deficit and debt if the economic growth projected by Republicans fails to materialize amid rising interest rates.
The White House and congressional Republicans did not give an estimate on how much the tax plan would cost. The nonprofit Tax Foundation policy group previously estimated it would reduce federal revenue by up to $5.9 trillion in the next decade.
Trump was hitting the road, on Wednesday, to sell the plan with an appearance in Indianapolis.
The RATE Coalition, representing large American companies including AT&T Inc (T.N), Home Depot Inc (HD.N), FedEx Corp (FDX.N), Walmart Stores Inc (WMT.N) and General Dynamics Corp (GD.N), embraced Trump’s proposal.
The coalition, which represents firms employing over 30 million workers in all 50 states, said America’s corporate tax rate is the highest in the industrialized world and “out of step with global reality.”
Tax Framework to Establish Pass-Through Exception
The tax framework would establish a 25% rate for business income from pass – throughs.
Under current tax law, business incomes are “passed through” to owners as personal income. This is often taxed at the top 39.6% individual income tax rate.
The Brookings Institution think tank estimates that 95% of all U.S. businesses are “pass – throughs,” which tend to be small, private businesses.
While it would lower the top individual rate from 39.6% to 35%, the Trump plan would double the standard deduction, a set amount of income exempt from taxation, for all taxpayers.
The aim of the proposal is to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%.
Republicans proposed eliminating some existing tax deductions, though they retain deductions for debt interest payments and charitable deductions.
Republicans argue that new revenues raised from eliminating tax alternatives would balance the tax cuts. They would also drive more powerful U.S. economic growth, predictions that critics are sure to question.
Completing a tax overhaul was the top promise of the 2016 election campaign by Trump and his Republican allies. And they are under escalating pressure to finish the job since the failure of the latest Republican effort to invalidate the Obamacare healthcare law.